SEC schedules 13D and 13G can help determine sec. 382 ownership changes.

• Author: Coughlin, Theresa A.

The Tax Reform Act of 1986's modifications to Sec. 382 significantly increased compliance burdens on taxpayers, particularly in determining the ownership of a loss corporation in order to calculate whether an ownership change has occurred.

As a general rule, Sec. 382 provides that after an ownership change, the amount of taxable income of any loss corporation for any post-change year that may be offset by prechange losses cannot exceed the Sec. 382 limitation for such year. In general, an ownership change occurs if the value of stock owned on a testing date by one or more 5% shareholders has increased by more than 50 percentage points over the lowest percentage held by such 5% shareholders during the testing period. In general, a 5% shareholder can be any person holding, directly or indirectly, 5% or more of the stock of the loss corporation at any time during the testing period. In addition, a 5% shareholder includes a public group of the loss corporation, first-tier entity, or higher-tier entity identified as a 5% shareholder by application of the aggregation or segregation rules.

Schedules 13D and 13G

Recognizing how difficult it may be for public companies to identify 5% shareholders, the IRS has provided some assistance. Temp. Regs. Sec. 1.382-2T(k)(l)(i) allows a loss corporation that has stock described in SEC Rule 13d-1(d) of Regulation 13D-G to rely on the existence or absence of filings of Schedules 13D and 13G (the "Schedules") at any date when determining 5% shareholders or when determining the ownership of first-tier or higher-tier entities. The Schedules are readily available to corporations through various information reporting services.

The Securities Exchange Act of 1934 defines an equity security broadly to include "any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement ... any put, call, straddle, option or privilege, on any security ...." The SEC is attempting to identify shareholders that exercise control over a corporation.

The Schedules are filed by entities or individuals with "beneficial ownership" of stock in a corporation. Generally, Schedule 13D is field by any person who acquires registered stock if, after the acquisition, the person owns 5% or more of that class of stock. Schedule 13D must be field within 10 days of the acquisition. Schedule 13G is a yearly reporting requirement for beneficial owners of 5% or more of any class of registered...